How to Build a Credit Score

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As much as we’d all love to be able to get through life on cash alone for many people this just isn’t realistic, especially if you have aspirations to own your own home one day. Mortgage lenders don’t hand out mortgages to anyone and everyone anymore so you are going to need to learn how to build a credit score if you want to secure a mortgage with a good lender at a good rate. This can prove to be a real problem for someone who has never held any form of credit in the past because lenders have no prior information to look back on to see if you can handle credit well and if you are the sort of person who will make your repayments on time each and every month.

The Credit Anomaly

So we’ve established that to build a credit rating you have to get some sort of credit and start making the repayments. But many lenders won’t lend to you if you don’t already have a good credit score. It’s not difficult to see the problem here. If mainstream lenders won’t lend to you until you have a stellar credit rating, how are you ever going to build a credit rating in the first place? Well the good news is that there are things you can do to begin building your credit rating today. Here are a few tips on how to build a credit score.

Get on the Electoral Roll

We have discussed this in more detail in the past but put simply lenders like to know that you are who you say you are and you live where you say you live. Being on the electoral roll gives lenders some reassurance in this area.

Check your credit report for errors

Even if you have never taken out any form of credit yourself, there is still a good chance that credit reference agencies will hold some sort of information about you. It’s a good idea to see just what information they hold on you to make sure it is accurate and fix any errors you find. It’s amazing how even simple errors can make an application for credit look fraudulent. It’s also possible that something negative may have been registered against you without your knowledge so be sure to check that out too.

Credit Building Credit Cards

There are credit cards out there that are specifically designed for people who don’t have much of a credit history. Most of the lenders that offer these credit builder credit cards make up for the risk involved by charging higher interest rates and keeping credit limits low. If you go for the credit building card option then it’s important to use it wisely and pay it off in full at the end of each month to avoid paying the high interest.This is a good way of showing lenders that you are creditworthy and responsible with money. Some of these credit cards even offer cash back and rewards so if used wisely you might even save a bit of money the next time you shop.

Don’t Apply for Every Card Going

So many people make this mistake when they first try to get credit. They go straight for a top quality card only to be rejected. They then apply for the next one on the list only to be rejected again. Before you know it you’ve made 10 applications for credit and been rejected for all of them. What does this say to lenders? Quite simply it looks like you are desperate for money, not a good sign to most responsible lenders. Before you start applying for credit take advantage of offers from credit reference agencies like Experian and Equifax and check your credit score for free. This way you will have a good idea of which lenders are likely to accept your application.

6 Responses to How to Build a Credit Score

Hey Adam, I can honestly say when I applied for my first mortgage in the UK years ago checking my credit score hadn’t even entered my mind. They just rubber stamped it and I had bought my first property. Looking back, I do remember having two or three credit cards that were always paid in full at the end of every month and I had never carried any debt.
One thing I can tell you for a fact is when you apply for and receive your credit history from the UK, it means absolutely nothing in another country. I had to rebuild it all over again, strangely enough through credit cards to begin with.

I’ve never really thought about having to rebuild your credit history in another country. It makes sense I suppose as the systems are probably completely different but it’s a shame if you had a great one in the UK that suddenly means nothing.

Having never missed a payment on bills, mortgages, etc and using credit cards and always paying them off in full, I imagined my credit score would be close to perfect. And it was, I had a green tick everywhere, but I lost 25 points just because I wasn’t on the electoral roll. One very quick and easy way of improving your score!!